Property division in a divorce happens in three stages. First, the property is classified as either separate property or marital property (and sometimes a mix of both). Then, the marital property is valued. Finally, the marital property is distributed between the parties. Remember that only marital property is divided between the parties, while separate property stays with its owner.
If a couple cannot agree as to how certain assets will be divided, the court must distribute them “equitably” between the couple.
The definitions of separate property and marital property are critical to this process and will be covered in a future post. For now, assuming that we have determined that something is marital property—how will it be distributed?
First and foremost, marital property is distributed however the parties agree that it will be. In well over 90% of divorce cases, the parties will agree as to how to distribute their property.
In cases where the parties can’t agree, New York law calls on a judge to distribute marital property “equitably between the parties, considering the circumstances of the case and of the respective parties.” (Domestic Relations Law, Section 236B(5))
Note: equitably does not mean equally. This is a common misconception. New York is not a “50-50” state, and the judge in a particular case may divide marital property unequally, if such a division seems equitable (fair) to them. As with other areas of the law, the statute lays out fourteen factors (see Domestic Relations Law 236B(5)(d)) that a judge must consider when determining how to divide marital property.
Except with regard to a few important types of assets (which we’ll delve into in subsequent posts), an unequal division of marital property is uncommon. In practice, marital property is generally divided equally or very close to equally, even though the law does not require it.
Everything we’ve said above about property, i.e., assets, can be said about debts or liabilities. If a couple cannot agree as to how they’ll be divided, the court must distribute them “equitably” between the couple.
Keep in mind that distributing an asset between parties to a divorce does not necessarily mean giving one portion of the asset to one party and the remaining portion of the asset to the other party. That type of distribution is called “in kind” distribution, and while preferable in certain circumstances, it is not always practical. Few people want to own and inhabit one-half of the home while their spouse owns and inhabits the other half.
In practice, different assets and liabilities are often traded off against each other. For instance, one person might retain the entire marital home (asset) as well as the mortgage on the home (liability), while the other person might keep their business (asset), the intellectual property they created during the marriage (asset), and a larger share of the credit card debt (liability). Depending on the make-up of the case, there are limitless variations on how this could play out.
Also note that practice differs around different types of assets—investment accounts vs. business interests vs. deferred compensation vs. real estate vs. retirement assets—and we’ll address the practice around each of those specific types of assets in subsequent posts.